If you’re planning to have a bet in the Melbourne Cup, it might pay to wait until the last minute if you’re on a tight budget.
Just 30 minutes before the field jumps in the race that stops a nation, RBA Governor Glenn Stevens will reveal whether the board has decided to lift rates for the third month in row – and those punters with a mortgage are being warned to keep a few dollars aside to cope with next month’s higher mortgage payment.
The smart money says a rate rise is near-certainty. But how big will the hike be?
A rush of positive economic data in the last few weeks, including higher-than-expected rises in house prices, strong consumer and economic sentiment data and relatively strong employment numbers had many in the market expecting the RBA could push up rates up 50 basis points from 3.25% to 3.75%.
But despite last week’s higher-than-expected inflation data, the mood of most economists seems to have moderated such that most are expecting rates to rise 0.25% to 3.5%.
“We expect the Reserve Bank to lift the cash rate by 25 basis points on Tuesday,” CommSec’s Craig James says.
“Data over the past month shows continued recovery of the domestic economy while Chinese economic figures have also remained strong. The US and European economies are still only limping along, but it is China, and Asia more generally, that matter for Australia.”
JP Morgan economist Stephen Walters points out that last year, unlucky punters could at least console themselves with the whopping 75 basis point cut made by the RBA on Cup day.
This year’s he’s tipping a 25 basis point rise following last week’s inflation data.
“Last week’s elevated inflation print and the increased urgency in the tone of recent RBA commentary hint that there is an outside chance of a 50 basis point move Tuesday. The inflation print, however, failed to deliver a big enough surprise to trigger a larger move. Our base case, therefore, is that there is little to be gained from spooking the horses on Cup day.”
However, Westpac chief economist Bill Evans is completely discounting the possibility of a 0.5% jump.
“Recent overseas developments must also be raising the Bank’s level of anxiety. Annual growth in China has been restored to 9% and on Friday we saw the print of GDP growth in the US of 3.5% (annualised for the September quarter) – the first positive since June 2008 and well above market expectations.”
“We see the case for the bank tightening by 50 basis points on 3 November to be followed by a further 25 basis points on 1 December.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
